March 18, 2011
Director Christina Urias
Chair of the International Solvency (EX) Working Group
National Association of Insurance Commissioners (NAIC)
Via email: kdefrain@naic.org
The American Academy of Actuaries 1 ERM Committee is pleased to provide comments on the
NAIC's International Solvency (EX) Working Group's U.S. Own Risk and Solvency Assessment
(ORSA) Proposal.
We agree that introduction of an ORSA requirement into the US solvency framework could
provide regulators with meaningful insights into a company's risk management practices. In
addition, we recognize the regulatory principles described within the International Association of
Insurance Supervisor (IAIS) Insurance Core Principle (ICP) 16, Enterprise Risk Management.
Our prepared comments do not discuss or address these principles.
We are pleased that the NAIC clarified several of the questions that we raised within our
comment letter dated October 4, 2010. Therefore, most of our Committee's recent discussion on
this proposal focused on the regulatory reporting requirements identified in paragraph 11.
We understand that one of the primary goals of the NAIC is to develop an understanding of the
processes by which insurers identify, assess, monitor, and mitigate risk. We believe that the
intent of a US ORSA requirement is to provide regulators access to internally prepared ORSAs;
it is not to create a separate â&#x20AC;&#x153;regulatory prescribed ORSA.â&#x20AC;? We therefore reiterate the comment
made in our prior letter that overly onerous or standardized reporting requirements will likely
make the information less valuable to the regulators. We encourage the NAIC to focus on the
appropriateness of the risk management assessments performed by insurers and allow for
potentially wide diversity in the form of the reporting on this assessment.
As currently identified, the proposed US ORSA regulatory reporting requirements could prove to
be very challenging for many insurers regardless of their size. The NAIC should consider a
requirement that insurers provide a comprehensive initial report of the results of their ORSA, and
then file subsequent reports based on material changes only. For example, while an insurer
would provide a description of its material risks and risk management policies in the first
reporting period, subsequent reporting would highlight only those material changes to the

1

The American Academy of Actuaries is a 17,000-member professional association whose mission is to serve the public on behalf of
the U.S. actuarial profession. The Academy assists public policymakers on all levels by providing leadership, objective expertise, and
actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for
actuaries in the United States.

1850 M Street NW Suite 300

Washington, DC 20036

Telephone 202 223 8196

Facsimile 202 872 1948 www.actuary.org

1

policies and risk outcomes previously shared. This type of change-based reporting could benefit
both regulators and insurers by mitigating the cost and effort of unnecessary regulatory reporting
in subsequent periods while still providing the relevant information that the filing is intended to
document.
In the remainder of this submission, we offer specific comments to select sections of the
exposure draft:
Paragraph 6

We strongly believe that ORSA should be conducted and reported on the same
basis as risk is managed within an insurance group. Other requirements could
create a level of compliance which is of less value to insurers and regulators.
We do, however, recognize the need for state regulators to understand the
specific risk profile of individual legal entities should it differ from the group.
At a minimum, we strongly urge the NAIC to allow pooled reporting for
members of inter-company pools since the risk profile of these entities would not
differ by insurance legal entity.

Paragraph 7

We agree that this reporting should be done as described in paragraph 7. We
also agree that the risks associated with non-insurance entities within a group
should be considered within an ORSA, especially if the risks arising from
these entities could affect the risk profile of the group. We believe that an
ORSA should cover all material risk exposures of the group, whether or not
they are reported on the balance sheet.

Paragraph 8

The frequency and extent of ORSA reporting should be dependent upon how the
regulators intend to use the information provided. In most cases, annual
reporting of the full ORSA would be a burdensome requirement of little practical
use, particularly those of insurance groups with literally dozens of companies or
on very small well capitalized companies with fewer available resources. Full
annual reporting will also place an unnecessary burden on regulators to review
literally hundreds of ORSAs in a short period of time. We acknowledge,
however, that special circumstances such as an economic crisis or a significant
change in risk profile or risk management approach may trigger a need for more
frequent reporting. Weakly capitalized companies may also need more frequent
reporting and analysis.
An option discussed by the ERM Committee is a modified approach to this new
requirement. While all insurers would be required to perform this assessment
internally as part of their ERM activities, the frequency and extent of the
regulatory reporting of ORSAs could be increased (e.g., annual reporting) for
only certain insurers based upon criteria or triggers established by the regulators.
Once the regulators are able to refine their intended use of this new information
and develop their departmentsâ&#x20AC;&#x2122; internal resources and expertise required to
review ORSAs, an appropriate reporting frequency could then be determined.
Also, to underscore a comment from our October 2010 communication, the need

1850 M Street NW Suite 300

Washington, DC 20036

Telephone 202 223 8196

Facsimile 202 872 1948 www.actuary.org

2

for regulators to ensure the confidentiality of the information contained within
the ORSA report is critical as it would likely include highly sensitive and
proprietary information.
Paragraph 9

We believe the ORSA should be the delegated responsibility of a senior officer
of the management team with the appropriate level of experience, and the Board
should provide an appropriate level of review and oversight.

Paragraph 21

The ORSA report should contain an examination and quantification of any
material deviation of actual risks from the risk tolerance levels established by the
group, including whether this deviation is temporary, and any future
plans/recommendations in this regard. Significant changes to risk tolerance
levels should be communicated to and approved by the Board and discussed in
the ORSA report.

Paragraph 26

It is our understanding that three to five year business plans may not be as
prevalent as currently envisioned within the proposal and, in situations where
extended planning does take place, there may be less rigor to the business
planning process for years three through five than for years one and two. The
focus of the ORSA should be more about a companyâ&#x20AC;&#x2122;s ability to withstand multiyear stress scenarios than about multi-year business plans.

Thank you for this opportunity to comment. If you have any questions, please contact Tina
Getachew, senior policy analyst, Risk Management and Financial Reporting Council, via email
(getachew@actuary.org) or phone (202/223-8196).
Sincerely,